Petrol pumps commission: massive revenue leakage detected in withholding tax collection

Substantial revenue leakage has been detected in withholding tax collection from the commission paid on sale of petroleum products to petrol pumps. Sources told Business Recorder on Tuesday that the Federal Board of Revenue is unable to monitor withholding tax collection under section 156A of the Income Tax Ordinance 2001.
Under this provision, every company selling POL products to the owners of the petrol pumps is required to deduct withholding tax at the rate of 10 percent of the commission paid on these items. The person selling products to a petrol pump operator shall deduct tax from the amount of commission or discount allowed to the operator. The tax deducted under the provision would be final tax on the income from the sale of POL products.
Sources said that section 156A is one of the important legal provisions of the Ordinance 2001, but like many other provisions, it is also not being monitored/enforced properly. Hundreds of petrol pumps are operating countrywide and they have different distributors. However, there is no mechanism in place to regularly monitor withholding tax collection from the amount of commission allowed to petrol pump operators.
In view of huge turnover of POL products involved, there is revenue leakage, which needs to be checked through collection of withholding tax at source. Sources said that petroleum products are also being black marketed without any tax deduction. Iranian petrol and other POL products are being smuggled into Pakistan.
The importers of oil included a large number of public and private companies taking advantage of deregulated petroleum sector. All such companies are engaged in making purchases through agents and brokers. Tax is also required to be deducted from such brokers, who are non-resident, and its rate is higher upto 30 percent. The withholding tax collection on this account is very nominal as compared to actual potential of imports.